Why should you open a bank or brokerage accounts abroad? Because it gives your investment portfolio higher returns and lower risks. How?

(2) Individuals cannot buy foreign bonds (denominated in local or foreign currency) from their home countries, unless they are willing to invest a high amount in one single bond (usually 100 thousand dollars is the minimum required for investing in any emerging market and many developed countries bonds). Different than stocks that can have negative growth (i.e. you can lose money), bonds investment never have negative growth. You will always increase your capital for the perspective of the investment's denomination. Bonds can be prefixed (i.e. you know exactly how much you will earn in a given period) or pegged to multiple factors such as inflation or interest interest.

Why should I buy foreign bonds?

More than protecting you against domestic economic downturns (i.e. crises) and devaluation of your currency, foreign bonds give you the option for potentially very high fixed returns. The financial returns of bonds are highly correlated to the interest rate set up by the national central bank. As of November 2018, for example, the Eurozone interest rate is 0%, US is 2%, Mexico is 7.75%, Ukraine is 18%, and Argentina is 60%. So, if you buy Mexican government bonds (denominated in local currency), for example, you will should earn a little more than 7.75%/ year (maybe 8.5-9%/year depending in the maturity date).

How risky are these bonds? What are the chances of default (i.e. a failure of the borrower to repay the bond)?

​First, as we already saw in "investing abroad", buying even high risk assets can decrease the overall risk of the portfolio given that the correlation between these assets is not perfect. Moreover, as the theory of optimal diversification from Harry Markowitz shows, the lower the correlations, the more risk reduction can be achieved. Foreign bonds tend to be highly uncorrelated, making them an excellent addition to a diversified portfolio.

Second, the chance of default affect bond returns but bond returns are not a perfect predictors for chance of default. This fact opens the possibility for disproportional gains by foreign bonds investors. Example: the chance of receiving a default after buying a Eurozone bond today is low but you will also make pretty much no money for holding them. In Ukraine, the chance of a default is much higher but so are the returns. So, one may think: "default chance and returns are correlated." Yes, they are, but they are not perfectly correlated. E.g., although US bonds pay more than Eurozone bonds, chance of an US default is probably smaller than chance of an EU default. So, by buying US bonds rather than EU bonds you would have higher returns at probably lower risks.

Third, defaults are not very common overall. Mexico, for example, does not default since 1982. A major reason for this that the international community imposes hard punishment on governments that default. When Argentina defaulted in 2001, for example, it lost access to global debt markets for 10 years. That partially explains Argentina incredibly high interest rates.​

IMPORTANT: THERE IS NO TAX OR INVESTMENT STRATEGY THAT IS CLEARLY BETTER. IT ALL DEPENDS ON YOUR GOALS AND RESOURCES.

For example, are you willing to move abroad? If so, where? How long do want to stay in each place? What is your annual income? How much money are you willing to invest? Do you want short term gains or long term investments? What is (are) the source(s) of your income? How much taxes do you pay annually? Do you want to decrease your tax duties or completely remove it? Do you feel like you want to pay some taxes even if you do not need to? What is your citizenship? Do you have multiple citizenships?​Depending on each of these answers the best investment/tax strategy for you will differ. In order to see what option is best for you and to help with the implementation of the strategy feel free to reach out to us.

You do not need to be rich to create a global investment portfolio. Most of the bank and brokerage accounts we open do not have minimum initial deposit or maintenance fee. Thus, you can invest as much as you want or even leave the accounts empty until you have enough capital or interest to invest abroad. ​